Strategy Implementation
HCAD 5390
Organizational Structure
Organizational design– Selecting the structure and control
systems that are most strategically effective for pursuing sustainable competitive advantage.
The role of structure and control– To coordinate strategy implementation.– To motivate and provide incentives for superior
performance.
The Role of Organizational Structure
Building blocks of organizational structure– Differentiation in the allocation of people and
resources to create value. Vertical differentiation in the
distribution of decision-making authority.
Horizontal differentiation in dividing up people and tasks into functions and divisions.
– Integration The means used in coordinating people and functions to
accomplish organizational tasks.
Differentiation, Integration, Bureaucratic Costs
Bureaucratic costs and strategy implementation:
– Bureaucratic costs increase with organizational complexity.
– More differentiation = more managers.– More integration = more coordination.– Better strategy implementation = better bottom-line
performance and profitability.
Vertical Differentiation
Span of control (division of authority)– The number of subordinates that a single manager
directly manages.Organizational hierarchy choices
– Flat structures Few organizational levels Wide spans of control
– Tall structures Many organizational levels Narrow spans of control
Tall and Flat Structures
Problems with Tall Structures
Principle of minimum chain of command– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
Sources of bureaucratic costs:
Centralization or Decentralization
Authority patterns in organizations:– Centralized
Decision making retained in the hands of upper-level managers.
– Decentralized Decisions delegated to lower
levels in the organization.
Centralization (Structural) Choice?
Advantages of decentralization
– Reduced information overload on upper managers.
– Increased motivation and accountability throughout organization.
– Fewer managers; lower bureaucratic costs.
Advantages of centralization
– Easier coordination of organizational activities.
– Decisions fitted to broad organizational objectives.
– Exercise of strong leadership in crisis.
– Faster decision making and response.
Horizontal Differentiation
Focus is on division and grouping of tasks to meet business objectives.Simple structure:
– Characteristic of small entrepreneurial companies.– Entrepreneur takes on most managerial roles.– No formal organization arrangements.– Horizontal differentiation is low.
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Structure Follows Strategy:
– Changes in corporate strategy lead to changes in organizational structure
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Structure Follows Strategy:• New strategy is created• New administrative problems emerge• Economic performance declines• New appropriate structure is invented• Profit returns to its previous levels
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Stages of corporate development
Simple Structure Functional Structure Divisional Structure Beyond SBU’s
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Simple Structure:– Stage I:
Entrepreneur – Decision making tightly controlled– Little formal structure– Planning short range/reactive– Flexible and dynamic
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Functional Structure:– Stage II:
Management team Functional specialization Delegation decision making Concentration/specialization in industry
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Divisional Structure:– Stage III:
Diverse product lines Decentralized decision making SBU’s Almost unlimited resources
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Beyond SBU’s:– Stage IV:
Increasing environmental uncertainty Technological advances Size & scope of worldwide businesses Multi-industry competitive strategy Better educated personnel
Functional Structure
Advantages– Task grouping facilitates
specialization and productivity.
– Better monitoring of work processes, reduced costs.
– Greater control over organizational activities.
Disadvantages– Functional orientation
creates communication problems.
– Performance and profitability measurement problems.
– Location versus function problems (coordination).
– Strategic problems due to structural (vertical and horizontal) mismatches.
Functional Structure
Mutlitdivisional Structure
Advantages– Enhanced corporate
control by division– Enhanced strategic control
of each SBU in portfolio– Growth is easier. New units
don’t have to be integrated across organization
– Stronger pursuit of internal efficiencies. Performance of individual units is readily measurable.
Disadvantages– Establishing the divisional-
corporate authority relationship
– Distortion of information by divisions
– Competition for resources by divisions
– Transfer pricing problems between divisions
– Short-term research and development focus
– Bureaucratic costs
Multidivisional Structure
Matrix Structure
Advantages– Flexibility of the structure and membership– Minimum of direct hierarchical control– Maximizes use of employees’ skills– Motivates employees;
frees up top managementDisadvantages
– High bureaucratic costs– High costs (time and money) for building
relationships– Two-boss employee’s role conflict
Matrix Structure
Two-boss employee
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Network Structure:– “non structure” – elimination of in-house
business functions– Termed “virtual organization”
Useful in unstable environments Need for innovation and quick response
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Network StructureNetwork Structure
Packagers
Designers Suppliers
Distributors
Corporate Headquarters
(Broker)
Promotion/ Advertising Agencies
Manufacturers
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Effective implementation requires:– Leadership
Leading people to use their abilities and skills most effectively and efficiently to achieve organizational objectives
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Staffing follows strategy:– Matching the manager to the strategy
Executive type– Executives with a particular mix of skills and
experiences
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Executive Types:– Dynamic industry expert– Analytical portfolio manager– Cautious profit planner– Turnaround specialist– Professional liquidator
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Matching Chief Executive “Types” with Strategy
Average
Hig
hL
ow
Business Strength/Competitive Position
Strong
Growth—Concentration
Dynamic Industry Expert
Stability
Cautious Profit Planner
Retrenchment—Close Company
Professional Liquidator
Retrenchment—Save Company
Turnaround Specialist
Ind
us
try
Att
rac
tiv
en
es
s
Me
diu
m
Weak
Growth—Diversification
Analytical Portfolio Manager
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Managing corporate culture:– Corporate culture
Affects firm’s ability to shift its strategic direction Strong tendency to resist change Corporate culture should support the strategy
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Strategy-Culture Compatibility:– Consider the following:
Is the planned strategy compatible with the firm’s current culture?
Can the culture be easily modified to make it more compatible with new strategy?
Is management willing to make major organizational changes?
Is management committed to implementing the strategy?
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Managing corporate culture:– Communication
Key to effective management of change Rationale for strategic change should be
communicated to all
What Is Organizational Culture?
Culture– The collection of values and norms shared by people and
groups in an organization.– Shared values and a common culture increase integration
and improve coordination.
Values– Beliefs and ideas about common goals and proper
behaviors.
Norms– Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
Organizational Culture
Ways of transmitting organizational culture:
Culture and Strategic Leadership
The influence of the founder– Initial cultural values and management
style is imprinted on the organization by its founder.
Organizational structure– Structure follows strategy.
Strategic leadership affects the cultural norms and values that develop in the organization.
Strategic Reward Systems
Individual reward systems– Piecework plans– Commission systems– Bonus plans– Promotion
Group and organizational reward systems
– Group-based bonus systems– Profit sharing systems– Employee stock option systems– Organization bonus systems